With an unspoken currency war supposedly upon us and a cry for China to join in — according to BofAML the market is pricing about a 30 per cent probability of a 10 per cent devaluation of the CNY this year while insistent market forces push the yuan down anyway — we thought a lopsided CNY depreciation pro and con list from Nomura might be helpful:

Pros

1. Makes exports more competitive, helping to boost growth.

2. Raises the cost of imports, helping to reduce the risk of CPI deflation.

This is FT Alphaville's look at what degree of control China has over the shenanigans occurring in its interbank markets. Is this an exercise in domination by the PBoC or a demonstration of just how little sway it actually has?

More on that Friday PBoC rate cut — and just as China goes ahead and cuts its 14-day repo operation rate by another 20bp to 3.20 per cent too. That move on Tuesday, according to Nomura, suggests that the PBoC will continue to ease monetary policy… which would be true to form.

As Barc note, “the policy rate cut suggests that China is once again following the typical sequence in a monetary easing cycle – the pace of CNY appreciation is often slowed in advanced, followed later by the same directional moves in the policy rate and banks’ required reserve ratio.” Read more

Some analysts had thought Beijing was ready to let the renminbi stabilise, but a sharp sell-off on Friday – at one point it declined 0.9 per cent, its biggest daily fall since the new currency system was introduced in 2005 – showed that the central bank was still determined to push it further.

“We’re still seeing PBoC intervention”, said a trader with a bank in Beijing. “This is beyond our expectations.”

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Argue about more sweeping policy changes as you will (the bet is still basically on a PBoC attempt to deter speculative inflows) but maybe keep an eye on the 6.20 level as you do. Read more

And on the seventh day it fell again, in accordance with the PBoC… which cut the fixing rate.

Pity the RMB carry trade, no matter what the reason. Deliberate carry trade rumbling, trade band widening to allow greater market control of the exchange rate… or maybe, just maybe, that China is kinda thinking that a depreciating yuan ain’t a terrible policy right now. Read more

The renminbi fell on Tuesday by the most in a single day since 2012, dropping 0.35 per cent against the dollar in the onshore market by midday in Shanghai, and 0.7 per cent since Wednesday, as the FT reported.

The market has put this down to an imminent change in China’s foreign exchange regime. The narrative is that the PBOC is preparing to widen the trading band ahead of flotation and is spooking the market intentionally, so that it realises that the RMB goes down as well as up, and that carry-trades are no free lunch.

There may be a new China to consider but its signs are not very easy to discern. The yuan is on a roll against the dollar, hitting multiple new highs since July but somewhat confusingly, estimates suggest that in the 12 months through September, some $225bn flowed out of China — that kind of outflow doesn’t square with the yuan’s recent strength. Read more

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Here’s an item that slipped by us at the end of last week — but not past the worrisomely workaholic indefatigable Stacy Marie-Ishmael of FT Tilt, who spotted it while on vacation and forwarded it to us. (Thanks.)

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

Not only did the People’s Bank of China fix the USDCNY cross-rate lower for the eighth time running on Monday at 6.7110, versus Friday’s 6.7172 — the longest run of low fixes since October 2007. But the cross-rate actually traded below the fix itself, hitting a low of 6.7095: Read more

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

Twelve out of nineteen respondents to a Bloomberg survey on the appreciation of China’s currency believe that the country’s central bank will introduce a free-float by the end of this quarter. Five predicted a September roll-out, while the remaining respondents foresee action by the year’s end at most. Analysts affirmed that China remains wary of a one-off revaluation lest it appear to succumb to foreign pressure.

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

Oh, can’t we have renminbi revaluation before the weekend, China? Please?

Reuters reports that forwards on the RMB deflated a bit on Friday. Seems traders found a Thursday NYT piece, which declared a rise “very close” and imminent in the “coming days”, too good to be true. Read more

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

China’s leaders have long been known for their pragmatically mysterious sayings, FT Alphaville observes – and ‘the renminbi is basically stable’ counts as one of them. China’s 2005 revaluation shows that the phrase can mean anything China wants it to mean – useful to know, amid the current debate on the country’s currency. Read more

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

…To judge from the international institutions which were shoved into the fray over RMB appreciation on Wednesday, including the World Bank and UNCTAD. At least it means the debate is now getting to the broader problem — imbalances.

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)